Social Issues / The Effects Of The National Economy
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Autor: anton 31 July 2010
Words: 1837 | Pages: 8
As Soft and Silky Shaving Gel has been a premier line of women's personal-care products since 1986, they are clearly doing many things properly that is allowing for consistent growth. The first major strength that the Ms-Tique Corporation can be accredited for is their understanding of the market. As they have been in the industry for a long time, they understand their target market very well and continue to brand a high-end line of products that has been succesfully selling for years. Furthermore, they have managed to position themselves a high-quality women's shaving gel, in which they have differentiated themselves from other brands.
Another major strength is where their products are positioned in the drug and food-and-drug stores. By using rack jobbers, they have managed to place their products away from men's shaving products, where consumers would not be directly able to see their premium difference in price. Through years of experience and accurate demographic testing, Soft and Silky Shaving Gel has managed to perfect their winning formula, changing it in 1991 to better meet the needs and wants of their target market. To do so, they added three moisturizers which included vitamin E.
Another main strength for the Ms-Tique corporation is the high sense of brand loyalty present by their current customers. Through studies and metrics, it has been made clear that once a woman decides to become a user of Soft and Silky Shaving Gel, that same woman would usually end up being a loyal customer and would not switch brands. This is a huge strength because it helps promote growth and minimizes the efforts required to retain customers.
The first main weakness found within the case is that when the company decided to start selling their product, in 1986, they did not have the technology to produce aerosol containers. A study done by Ms-Tique shows that women prefer the aersole can unanimously. As a result, it is clear that this is a weakness that could be hindering the potential future profits to be had by Ms-Tique.
Another main weakness is the fact that as Soft and Silky Shaving Gel had been experiencing consistent growth over the years. Although that in itself is not a weakness, Ms-Tique has a manufacturing policy where-in they are to utilize existing production capacity at all times. However, due to growth in all the product lines offered by Ms-Tique, their production capacity has been affected along with their production scheduling.
Keeping in line with production, it was also stated that due to poor fill-rates, there had been requests made by retailers that had not been tended to in a timely fashion, which consquently lead to lost sales.
Although Soft and Silky Shaving Gel unit sales volumes are coming to a virtual standstill and at risk of declining, Ms-Tique has a great opportunity to react to market conditions and fix the problem before it affects profits too greatly. To explore this opportunity, Ms-Tique has undergone four focus-groups to see how new efforts would affect their bottom line. After completing the study, it was very clear that the aerosol can would be heavily favoured and would therefore help keep a steady growth amongst the organization.
A further opportunity with the aerosol can presents itself when discussing converting customers over to their brand. For example, the study showed that 25% of non-customers were not using Soft and Silky Shaving Gel due to the fact that it was not in aerosol cans. Therefore, by switching to an aerosol can a large opportunity has presented itself to attract new clients and therefore further revenue.
The case also states that by introducing the aerosol can in conjuction with the old packaging, there would be an incremental increase in unit sales volume soley based on the fact that there are two different types of packaging, again increasing future potential profits.
The first threat was presented by Heather Courtwright in that Ms-Tique Corporation had no plans for the expansion of their manufacturing capacity, despite an obvious and immediate need to do so. This is a big threat because without plans for a solution to their manufacturing capacity problems, scheduling will continually be in conflict which will in turn lead to lost sales. In a world where products have smaller margins in profit and heavy competition across most industries, it is not favourable or efficient to lose sales from customers that are willing to purchase their products.
Another main threat, if not the biggest one would be the fact that the aerosol can has become the predominant design for women's shaving creams and gels. This is a major threat because many consumers will not use the product solely based on the fact that it does not use an aerosol container. In fact, Masters proclaimed that if Ms-Tique continued to use the gel tubing, Soft and Silky Shaving Gel would witness a .32% decrease for 2001, which is far off from the regular 3 - 5% growth.
2. Unit Contribution Margin
5.5 ounce Tube -
In the text, it says that it costed Soft and Silky Shaving Gel $784 000 to produce 1 960 000 units sold in 2000. With that said, 784 000 / 1 960 000 = $0.4, or 40 cents per unit. This sells for 3.95 in stores. It also states that retailers would earn a 40 % margin on the suggested retail price. That would mean that they are receiving $1.58 per tube. 3.95 - 1.58 = 2.37. This also means that Ms-Tique is selling the tubes to the customers at $2.37. $2.37 (price they are selling the unit to the retailer) - 0.4 (their variable cost of good sold per unit) = 1.97. Therefore, there is a profit of $1.97 being made after calculating variable costs of goods sold.
5.5 ounce aerosol -
The text states that it would cost $0.24 to produce the 5.5 ounce aerosol can, which would in turn sell for $3.50 in stores. Keeping in line with the 40% rule for retailer profit margin, retailers would get $1.40 per can and Ms-tique would therefore be getting $2.10.
10 ounce aerosol -
The text states that each 10 ounce can would cost $0.29 to produce. These same cans would sell for $4.25 in retail stores. Again, keeping in line with the rule of 40%, the retailer would earn $1.70, while Ms-Tique would earn $2.55 per unit.
I believe that the pricing for both the 5.5 ounce and 10 ounce aersol cans are priced quite fairly. However, one concern I would have would be that although many customers would appreciate the lowered price, how well would that reflect the image they are trying to represent; that of a high-end line. Lowering prices, especially with luxury products does not always necessarily reflect increase sales. Also, if the 40% rule were to continue to apply, retailers may be slightly unhappy that they are earning less money per 5.5 ounce unit. However, in the event that they are correct and sales do increase, then the lower profit margin for the retailer will be made up with a higher volume. Also, it is important to note that although the price is lower, Ms-Tique corporation will in fact be making more per unit, not less.
Overall, however, I do believe this to be a fair pricing scheme.
- The first main pro is that there would still be the option to purchase the 5.5 ounce size, which some customers would prefer. This way, customers would not be forced to buy a bigger size and would have the option of buying either size, which could attract more customers.
- Customers that have been using the 5.5 ounce tube for a long time will not have to worry about losing the product that they already love. Brand loyalty is a big deal, especially when there is such heavy competition. This way, customers who have grown acustomed to the 5.5 ounce tube will be able to continue to use the product they love.
- Customers who only use aerosol cans will now be able to use Soft and Silky Shaving Gel as they would now have the option to do so. Although it would only be in the 10 ounce size, many customers could not be picky about product size but rather whether it was in an aerosol can or not. For these customers, they would now be able to use a Soft and Silky product in an aerosol can.
- Even at a low estimate, after cannibilization Soft and Silky Shaving gel would see a significant growth in units sold. This would have a positive increase on future potential profits and would keep the Ms-Tique corporation in consisten growth patters as previously seen.
-If only the 10 ounce aerosol can was introduced, there would still be the opportunity missing for the 5.5 ounce aerosol unit. The reason this is a con is that there could potentially be many customers that would still only want to buy the 5.5 ounce unit, however would prefer the aerosol can. This could result in a potential loss of sales for the Ms-Tique.
-Although the 10 ounce can was the favourite in the study, it is also noted that 25% of the customers would switch to the 5.5 ounce aerosol can. This could also potentially leave a lot of customers unhappy.
-Since a $10 000 fee must be paid regardless of which unit will be produced, or a combination of both, it would make better business sense for Soft and Silky to produce both simultaneously, leading to a higher level of sales and less cost per unit as per the fee.
If the decision came down to chosing between either the 5.5 or the 10 ounce aerosol can, I still believe the $10 000 charge would in fact be a relevant one. The reason I believe so is as follows:
The $10 000 charge would be an initial set up charge that would be required to adjust the machinery and set up production as required. For this reason it makes sense that the charge is to be incurred and I believe it would most likely be charged regardless who Ms-Tique chose to manufacture their new packaging.
Furthermore, perhaps the initial cost of $10 000 is high, however the revenue that the organization is forecasting to gain comparatively would be a definite reason to understand that the cost will make sense in terms of their growth. Also, it is clear that not only will they not witness growth in the following year but rather lose the amount of units sold the following year.
For the reasons, I believe that regardless of which type of packaging they chose to go with, or combination thereof the charge is in fact relevant and should not be considered an issue.
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